|SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q


[  X  ] Quarterly Report pursuant
to Section 13 or 15(d) of the Securities
Exchange Act of 1934For the quarterly period ended June 30, 2002

[   ] Transition Report
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

For the transition period from ___ to ___

Commission File Number  0-26138
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Dendrite International, Inc. | 
| | ---------------------------- | 

| | (Exact name of registrant as specified in its charter) | 
| | ------------------------------------------------------ | 

|New Jersey |  | 22-2786386
|---------- |  | ----------

|(State or other jurisdiction of 
incorporation or organization) |  | (I.R.S. Employer Identification No.)
|--------------------------------------------------------------- |  | ------------------------------------

|1200 Mount Kemble Avenue
Morristown, NJ 07960
973-425-1200

(Address, including zip code, and telephone
number (including area code) of registrants principal executive office)


Indicate by check mark whether the  registrant  (1) has filed all reports  required to be filed by Section
13 or 15(d) of the  Securities  Exchange Act of 1934 during the  preceding  12 months (or for such  shorter  period
that the registrant was required to file such reports),  and (2) has been subject to such filing  requirements  for
the past 90 days.   Yes [  X  ]   No  [    ]



Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest practicable date: at August 9, 2002 there were 39,843,604 shares of
common stock outstanding.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|DENDRITE INTERNATIONAL, INC.
INDEX
|----------------------------------

| |  |  | PAGE NO
| |  |  | -------

|PART I. |  | FINANCIAL INFORMATION | 
|------- |  | --------------------- | 

|ITEM 1. |  | Consolidated Financial Statements (Unaudited) | 
|------- |  | --------------------------------------------- | 

| |  | Consolidated Statements of Operations 
          
Three months and six months ended June 30, 2002 and 2001 | 3
| |  | ---------------------------------------------------------------------------------------------------------- | -

| |  | Consolidated Balance Sheets 
          
June 30, 2002 and December 31, 2001 | 4
| |  | --------------------------------------------------------------------------- | -

| |  | Consolidated Statements of Cash Flows
          
Six months ended June 30, 2002 and 2001 | 5
| |  | ---------------------------------------------------------------------------------------- | -

| |  | Notes to Unaudited Consolidated Financial Statements | 6
| |  | ---------------------------------------------------- | -

|ITEM 2. |  | Managements Discussion and Analysis of Financial Condition
and Results of Operations | 9
|------- |  | ------------------------------------------------------------------------------------- | -

|PART II. |  | OTHER INFORMATION | 
|-------- |  | ----------------- | 

|ITEM 4. |  | Submission of Matters to a Vote of Security Holders | 20
|------- |  | --------------------------------------------------- | --

|ITEM 5. |  | Other Information | 20
|------- |  | ----------------- | --

|ITEM 6. |  | Exhibits and Reports on Form 8-K | 20
|------- |  | -------------------------------- | --

|Signatures |  |  | 21
|---------- |  |  | --

|2
|-

---

|PART I.     FINANCIAL
INFORMATION
ITEM 1.  Consolidated Financial Statements.

DENDRITE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                      | THREE MONTHS ENDED JUNE 30, | SIX MONTHS ENDED JUNE 30,
|----------------------------------------------------- | --------------------------- | -------------------------
|                                                      |                             |                          
|
|                                                      |                             |                          
|Revenues:                                             |                             |                          
|License fees                                          |                             | $   2,306                
|Services                                              |                             | 55,306                   
|                                                      |                             |                          
|                                                      |                             | 57,612                   
|                                                      |                             |                          
|Cost of revenues:                                     |                            
|Cost of license fees                                  |                             | 1,007                    
|Purchased software impairment                         |                             | --                       
|Cost of services                                      |                             | 27,748                   
|                                                      |                             |                          
|                                                      |                             | 28,755                   
|                                                      |                             |                          
|Gross margin                                          |                             | 28,857                   
|                                                      |                             |                          
|Operating expenses:                                   |                            
|Selling, general and administrative                   |                             | 19,488                   
|Research and development                              |                             | 2,455                    
|Restructuring charge                                  |                             | --                       
|Asset impairment                                      |                             | --                       
|                                                      |                             |                          
|                                                      |                             | 21,943                   
|                                                      |                             |                          
|Operating income (loss)                               |                             | 6,914                    
|Interest income                                       |                             | 288                      
|Other income (expense)                                |                             | (21                      
|                                                      |                             |                          
|Income (loss) before income tax 
expense (benefit)    |                             | 7,181                    
|                                                      |                            
|Income tax expense (benefit)                          |                             | 2,585                    
|                                                      |                             |                          
|Net income (loss)                                     |                             | $   4,596                
|                                                      |                             |                          
|Net income (loss) per share:                          |                            
|Basic                                                 |                             | $     0.12               
|                                                      |                             |                          
|Diluted                                               |                             | $     0.11               
|                                                      |                             |                          
|Shares used in computing net income (loss) per share: |                            
|Basic                                                 |                             | 39,921                   
|                                                      |                             |                          
|Diluted                                               |                             | 40,321                   
|                                                      |                             |                          

|The accompanying notes
are an integral part of these statements.



3
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|DENDRITE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
|---------------------------------------------------------------------------------------------------------

|                                                        | JUNE 30,2002 | DECEMBER 31,2001
|------------------------------------------------------- | ------------ | ----------------
|                                                        |              |                 
|Assets                                                  |              |                 
|Current Assets:                                         |             
|Cash and cash equivalents                               |              | $   55,521      
|Short-term investments                                  |              | 13,389          
|Accounts receivable, net                                |              | 35,242          
|Prepaid expenses and other                              |              | 5,744           
|Prepaid taxes                                           |              | 3,967           
|Deferred taxes                                          |              | 6,106           
|                                                        |              |                 
|Total current assets                                    |              | 119,969         
|                                                        |              |                 
|Property and equipment, net                             |              | 26,067          
|Facility held for sale                                  |              | 8,732           
|Other assets                                            |              | 700             
|Long term receivable                                    |              | 2,946           
|Goodwill, net                                           |              | 4,830           
|Capitalized software development costs, net             |              | 5,383           
|Deferred taxes                                          |              | 1,571           
|                                                        |              |                 
|                                                        |              | $ 170,198       
|                                                        |              |                 
|Liabilities and Stockholders Equity                    |             
|Current Liabilities:                                    |             
|Accounts payable                                        |              | $     1,908     
|Accrued compensation and benefits                       |              | 4,754           
|Other accrued expenses                                  |              | 14,037          
|Accrued restructuring charge                            |              | 1,446           
|Deferred revenues                                       |              | 7,587           
|                                                        |              |                 
|Total current liabilities                               |              | 29,732          
|                                                        |              |                 
|Other non-current liabilities                           |              | 607             
|Stockholders Equity:                                   |             
|Preferred Stock, no par value, 10,000,000 shares        |             
|authorized, none issued                                 |              | --              
|Common Stock, no par value, 150,000,000 shares          |             
|authorized; 42,000,683 and 41,598,923 shares issued and |             
|40,055,483 and 39,653,723 shares outstanding            |              | 92,377          
|Retained earnings                                       |              | 69,612          
|Deferred compensation                                   |              | (93             
|Accumulated other comprehensive loss                    |              | (2,630          
|Less treasury stock, at cost                            |              | (19,407         
|                                                        |              |                 
|Total stockholders equity                              |              | 139,859         
|                                                        |              |                 
|                                                        |              | $ 170,198       
|                                                        |              |                 

|The accompanying notes
are an integral part of these statements.



4
|---------------------------------------------------------------------

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|DENDRITE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
|---------------------------------------------------------------------------------------------

|                                                             | SIX MONTHS ENDED JUNE 30,
|------------------------------------------------------------ | -------------------------
|                                                             |                          
|
|                                                             |                          
|Operating activities:                                        |                          
|Net income (loss)                                            |                          
|Adjustments to reconcile net income (loss) to net cash       |                          
|provided by operating activities:                            |                          
|Depreciation and amortization                                |                          
|Asset impairment                                             |                          
|Restructuring charge                                         |                          
|Amortization of deferred compensation                        |                          
|Deferred income tax benefit                                  |                          
|Changes in assets and liabilities:                           |                          
|(Increase)/decrease in accounts receivable                   |                          
|Increase in prepaid expenses and other current assets        |                          
|Increase in prepaid income taxes                             |                          
|(Decrease)/increase in accounts payable and accrued expenses |                          
|Payments relating to restructuring charge                    |                          
|(Decrease)/increase in deferred revenues                     |                          
|Increase in other  non-current liabilities                   |                          
|                                                             |                          
|Net cash provided by operating activities                    |                          
|                                                             |                          
|Investing activities:                                        |                          
|Purchases of short-term investments                          |                          
|Sales of short-term investments                              |                          
|Increase in other non-current assets                         |                          
|Purchases of property and equipment                          |                          
|Investment in facility held for sale                         |                          
|Additions to capitalized software development costs          |                          
|                                                             |                          
|Net cash used in investing activities                        |                          
|                                                             |                          
|Financing activities:                                        |                          
|Purchase of treasury stock                                   |                          
|Issuance of common stock                                     |                          
|                                                             |                          
|Net cash provided by/(used in) financing activities          |                          
|                                                             |                          
|Effect of exchange rate changes on cash                      |                          
|Net decrease in cash and cash equivalents                    |                          
|Cash and cash equivalents, beginning of period               |                          
|                                                             |                          
|Cash and cash equivalents, end of period                     |                          
|                                                             |                          

|The accompanying notes
are an integral part of these statements.


5
|--------------------------------------------------------------------

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|DENDRITE
INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


1.  Basis of Presentation


The
consolidated financial statements of Dendrite International, Inc. and its subsidiaries
(the Company) included in this Form 10-Q are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the opinion
of management, necessary for a fair presentation of the financial position and operating
results for the three and six month periods ended June 30, 2002 and 2001. For further
information, refer to the consolidated financial statements and notes thereto included in
the Companys Annual Report on Form 10-K for the year ended December 31, 2001.


Our
interim operating results may not be indicative of operating results for the full year.


2.  Net Income
(Loss) Per Share


Basic
net income (loss) per share was computed by dividing the net income (loss) for each
period by the weighted average number of shares of common stock outstanding for each
period. Diluted net income per share was computed by dividing net income for each period
by the weighted average number of shares of common stock and common stock equivalents
(stock options) outstanding during each period. For the three and six month periods ended
June 30, 2002, common stock equivalents used in computing diluted net income per share
were 400,000 and 451,000 shares, respectively. For the three and six month periods ended
June 30, 2001, common stock equivalents were anti-dilutive and were therefore excluded
from the computation of diluted net loss per share.


3.  Comprehensive Income


Assets
and liabilities of the Companys wholly-owned international subsidiaries are
translated at their respective period-end exchange rates and revenues and expenses are
translated at average currency exchange rates for the period. The resulting translation
adjustments are included as Accumulated other comprehensive loss and are
reflected as a separate component of stockholders equity. Total after-tax
comprehensive income for the three months ended June 30, 2002 was $4,874,000 compared to
total after-tax comprehensive loss of $19,782,000 for the three months ended June 30,
2001. Total after-tax comprehensive income for the six months ended June 30, 2002 was
$8,207,000 compared to total after-tax comprehensive loss of $18,822,000 for the six
months ended June 30, 2001.


4.  Reclassifications


Certain
prior period balances have been reclassified to conform with current year presentation.


5.  Restructuring Charge


On
June 14, 2001, the Company announced a restructuring of its business operations to
reflect a lower expected revenue growth model in the near term. The restructuring plan
consisted of the resizing of the Companys personnel by a reduction of 155 employees
and the elimination of 35 independent contractors across various departments in the
United States and Europe as well as 192 additional personnel associated with the
restructuring of the Companys facility in Stroudsburg, PA. The Stroudsburg, PA
operations have been substantially relocated to the Companys facilities in New
Jersey, Virginia and a new facility in Bethlehem, PA. The exit costs have been included
in the restructuring charge while the moving and other start-up costs are not included in
this restructuring charge and are being expensed as incurred.


During
the second quarter of 2001, the Company recorded a charge of $6,134,000 associated with
this restructuring. This charge was reduced by $24,000 to $6,110,000 in the fourth
quarter of 2001 due to the variance between the amounts originally recorded and managements
current estimate of the total costs of the restructuring. Of the restructuring charge,
$1,446,000 related primarily to severance has not been paid as of June 30, 2002 and,
accordingly, is classified as accrued restructuring charge in the accompanying
consolidated balance sheet. The restructuring charges were based upon formal plans
approved by the Companys management using the information available at the time.
Management of the Company believes this provision will be adequate to cover the costs
incurred relating to the restructuring. The Company anticipates that the accrued
restructuring balance of $1,446,000 as of June 30, 2002 will be paid during 2002. The
activity on the accrued restructuring charge balance as of June 30, 2002 is summarized in
the table below:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                  | AccruedRestructuring as ofDecember 31, 2001 | Cash Payments in2002 | AccruedRestructuring as ofJune 30, 2002
|--------------------------------- | ------------------------------------------- | -------------------- | ---------------------------------------
|                                  |                                             |                      |                                        
|Termination payments to employees |                                             | $2,218,000           |                                        
|Facility exit costs               |                                             | 495,000              |                                        
|Contract termination and other    |                                            
|restructuring costs               |                                             | 237,000              |                                        
|                                  |                                             |                      |                                        
|                                  |                                             | $2,950,000           |                                        
|                                  |                                             |                      |                                        

|6
|-

---

|6.  Customer and
Geographic Segment Data


In the
three months ended June 30, 2002, the Company derived approximately 46% of its revenues
from its two largest customers. In the three months ended June 30, 2001, the Company
derived approximately 51% of its revenues from its two largest customers. In the six
months ended June 30, 2002, the Company derived approximately 55% of its revenues from
its three largest customers. In the six months ended June 30, 2001, the Company derived
approximately 47% of its revenues from its two largest customers.


The
Company is organized by geographic locations and has one reportable segment. All
transfers between geographic areas have been eliminated from consolidated revenues.
Operating income consists of total revenues recorded in the location less operating
expenses and does not include interest income, other expense or income taxes. This data
is presented in accordance with Statement of Financial Accounting Standards (SFAS)
No. 131, Disclosure About Segments of an Enterprise and Related Information.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                 | For the three months ended June 30, | For the six months ended June 30,
|---------------- | ----------------------------------- | ---------------------------------
|                 |                                     |                                  
|
|                 |                                     |                                  
|Revenues:        |                                     |                                  
|United States    |                                     | $ 46,671,000                     
|All Other        |                                     | 10,941,000                       
|                 |                                     |                                  
|                 |                                     | $ 57,612,000                     
|                 |                                     |                                  
|Operating income |                                    
|(loss):          |                                    
|United States    |                                     | $   5,234,000                    
|All Other        |                                     | 1,680,000                        
|                 |                                     |                                  
|                 |                                     | $   6,914,000                    
|                 |                                     |                                  

|                     | June 30, 2002 | December 31, 2001
|-------------------- | ------------- | -----------------
|                     |               |                  
|Identifiable assets: |               |                  
|United States        |               | $148,901,000     
|All Other            |               | 21,297,000       
|                     |               |                  
|                     |               | $170,198,000     
|                     |               |                  

|For
segment reporting purposes, license revenues have been allocated to the sales office of
the respective country in which the sale is made, although the actual contract is with
the U.S. entity for legal and tax purposes.


7.   Impact of
Recently Issued Accounting Pronouncements


Effective
July 1, 2001 the Company adopted SFAS No. 141, Business Combinations (SFAS No. 141) and
effective January 1, 2002 the Company adopted SFAS No. 142, Goodwill and other
Intangible Assets (SFAS No. 142). SFAS No. 141 requires business combinations initiated
after June 30, 2001 to be accounted for using the purchase method of accounting. It also
specifies the types of acquired intangible assets that are required to be recognized and
reported separate from goodwill. SFAS No. 142 requires that goodwill and certain
intangibles no longer be amortized, but instead tested for impairment at least annually.
SFAS No. 142 also requires that intangible assets with finite useful lives be amortized
over their respective estimated useful lives and reviewed for impairment in accordance
with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of (SFAS No. 121) which was superceded by SFAS No. 144,
Accounting for Impairment of Long-Lived Assets" (SFAS No. 144). Based on the Companys
analysis, there was no impairment of goodwill upon adoption of SFAS No. 142 on January 1,
2002. The Company intends to conduct its annual impairment testing of goodwill on October
1 each year.


Intangible
assets with identifiable useful lives that are subject to amortization consist of
developed capitalized software development costs. Accumulated amortization related to
developed capitalized software development costs was $10,644,000 and $9,348,000 at June
30, 2002 and December 31, 2001, respectively.


Aggregate
annual amortization expense for intangible assets is estimated to be:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                   
|-------------------
|2002               
|2003               
|2004               
|2005               
|2006 and thereafter

|There
were no changes in the carrying amount of goodwill during the six months ended June 30,
2002.



7
|--------------------------------------------------------------------------------------------------------

---

|The
pro forma results of operations for the three months and six months ended June 30, 2001
assuming the provisions of SFAS No. 142 had been applied are as follows:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                            | Three months ended   June 30, 2001 | Six months ended   June 30, 2001
|----------------------------------------------------------- | ---------------------------------- | --------------------------------
|                                                            |                                    |                                 
|Net loss (as reported)                                      |                                    | $(19,576,000                    
|Add back amortization of goodwill, net of income tax effect |                                    | 323,000                         
|                                                            |                                    |                                 
|Adjusted net loss                                           |                                    | $(19,253,000                    
|                                                            |                                    |                                 
|Basic and diluted net loss per common share:                |                                    |                                 
|Net loss (as reported)                                      |                                    | $     (0.50                     
|Add back amortization of goodwill, net of income tax effect |                                    | $      0.01                     
|                                                            |                                    |                                 
|Adjusted net loss                                           |                                    | $     (0.49                     
|                                                            |                                    |                                 

|In
October 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 144,
which supercedes SFAS No. 121, Accounting for the Impairment of Long-lived Assets
and for Long-Lived Assets to be Disposed Of, and addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. This statement is
effective for fiscal years beginning after December 15, 2001. The Company adopted this
statement on January 1, 2002, which did not have an impact on the Companys
financial position or results of operations.


In
November 2001, the FASB issued Emerging Issues Task Force Rule No. 01-14, Income
Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses
Incurred (EITF 01-14). EITF 01-14 requires that in cases where the
contractor acts as a principal, reimbursements received for out-of-pocket expenses
incurred be characterized as revenue and the associated costs be included as cost of
services in the income statement. The Company applied EITF 01-14 for the period ended
June 30, 2002 and, as required, has also reclassified comparative financial information
for the period ended June 30, 2001. The impact of applying this pronouncement was to
increase revenues and cost of services by $1,444,000 and $2,976,000 for the three months
and six months ended June 30, 2002, respectively, and to increase revenues and cost of
services by $985,000 and $1,917,000 for the three months and six months ended June 30,
2001, respectively. The implementation of EITF 01-14 has no impact upon earnings.


8.  Long Term
Receivable


During
the second quarter of 2002, the Company recorded a long term receivable of $2,946,000
from a major U.S. pharmaceutical company as part of a five-year contract. The Company
expects that this long term receivable will grow to approximately $6,700,000 by December
31, 2002 and will be paid beginning in January 2003 through January 2005 as the
maturities come due. The Company has imputed interest and accordingly, interest income
will be recognized as earned within interest income on the Consolidated Statement of
Operations.


9.  Note
Receivable to Officer of the Company


In May
2002, the Company entered into a note receivable with an officer of the Company in the
amount of $500,000 in connection with his relocation. The principal is fully secured and payable in four installments
through December 31, 2005. Interest will be calculated on the principal balance and paid
with each installment payment at a rate equal to 7.25% per annum. The note receivable is
included within Other Assets on the accompanying Consolidated Balance Sheet.


10.  Subsequent
Events


In
July 2002, the State of New Jersey enacted new tax legislation that will adversely impact
the effective state tax rate of most companies operating in New Jersey. This legislation
is retroactive to January 1, 2002. It is estimated that the effect of this legislation
will increase the Companys effective tax rate from 36% to 40% for the 2002 tax
year. In accordance with SFAS No. 109 Accounting for Income Taxes, the tax
provision for the three months ending September 30, 2002 will reflect the retroactive
impact of the higher effective tax rate for the six months ended June 30, 2002 as well as
a provision on the current quarter pre-tax earnings of approximately 40%. The retroactive
impact on the six months ended June 30, 2002 will result in approximately $508,000 of
additional income tax expense in the three months ending September 30, 2002.



8
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|On
July 31, 2002, the Company announced that its Board of Directors had authorized the
Company to repurchase up to $20,000,000 of its outstanding common stock over a two-year
period (the 2002 Stock Repurchase Plan). Under the 2002 Stock Repurchase Plan
the Company will repurchase shares on the open market or in privately negotiated
transactions from time to time. Repurchases of stock under the 2002 Stock Repurchase Plan
are at managements discretion, depending upon price and availability. The
repurchased shares are held as treasury stock, which may be used to satisfy the Companys
current and near term requirements under its equity incentive and other benefit plans and
for other corporate purposes. Through August 9, 2002, the Company has repurchased
277,500 shares of Company common stock at a purchase price of $1,469,032 under the
2002 Stock Repurchase Plan.


ITEM 2.   Managements
Discussion and Analysis of Financial Condition and Results of Operations.


FORWARD-LOOKING
STATEMENTS


This
Form 10-Q contains certain forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21-E of the Securities Exchange Act of 1934,
and which are intended to be covered by the safe harbors created by such acts. For this
purpose, any statements that are not statements of historical fact may be deemed to be
forward-looking statements, including the statements under Managements
Discussion and Analysis of Financial Condition and Results of Operations regarding
our strategy, future operations, future expectations or future estimates, financial
position and objectives of management. Those statements in this Form 10-Q containing the
words believes, anticipates, plans, expects,
looks, may, will or similar statements or variations
of such terms constitute forward-looking statements, although not all forward-looking
statements contain such identifying words. These forward-looking statements are based on
our current expectations, assumptions, estimates and projections about our Company and
the pharmaceutical industry. All such forward-looking statements involve risks and
uncertainties, including those risks identified under Factors That May Affect
Future Operating Results, many of which are beyond our control. Although we believe
that the assumptions underlying our forward-looking statements are reasonable, any of the
assumptions could be inaccurate and actual results may differ from those indicated by the
forward-looking statements included in this Form 10-Q, as more fully described under
Factors That May Affect Future Operating Results. In light of the significant
uncertainties inherent in the forward-looking statements included in this Form 10-Q, you
should not consider the inclusion of such information as a representation by us or anyone
else that we will achieve such results. Moreover, we assume no obligation to update these
forward-looking statements to reflect actual results, changes in assumptions or changes
in other factors affecting such forward-looking statements.


OVERVIEW


Dendrite
enables pharmaceutical companies to have more of their drugs prescribed for improved
patient health through the strategic optimization of their sales and marketing channels
and clinical resources. Co-founded in 1986 by John E. Bailye, the Companys Chairman
and Chief Executive Officer, Dendrite was originally established to provide sales force
automation solutions to the global pharmaceutical industry. These solutions allow clients
to manage sales force activities in complex selling environments. Today, Dendrite also
provides customer relationship management (CRM) solutions, advanced
analytics, clinical trial services and eLearning. The Companys solutions are
combined with specialized support services such as training and implementation, technical
and hardware support, as well as help desk and data center services. We develop,
implement and service our products through sales, support and technical personnel located
in 17 countries.


Dendrites
primary markets are the United States, the United Kingdom, France, and Japan. We bill
services provided by our foreign branches and subsidiaries in local currencies. Operating
results generated in local currencies are translated into U.S. dollars at the average
exchange rate in effect for the reporting period. We generated approximately 19% and 21%
of our total revenues outside the United States during the six months ended June 30, 2002
and 2001, respectively. Our operating profits by geographic segment are shown in Note 6
of the Notes to Unaudited Consolidated Financial Statements.


CRITICAL
ACCOUNTING POLICIES


Financial
Reporting Release No. 60, which was recently released by the SEC, requires companies to
include a discussion of critical accounting policies or methods used in the preparation
of financial statements. A critical accounting policy is one that is both important to
the portrayal of the Companys financial position and results of operations and
requires managements most difficult, subjective or complex judgments. The Company
believes its critical accounting policies to be revenue recognition, accounting for
impairments and income taxes.


The
Company charges customers license fees to use its proprietary computer software.
Customers generally pay one-time fees for perpetual licenses based upon the number of
users, territory covered, and the particular software licensed by the customer. The
Company generally recognizes license fees as revenue using the percentage-of-completion
method over a period of time that commences with the execution of the license agreement
and ends when the product configuration is complete and it is ready for use in the field.
This period of time usually includes initial configuration and concludes with quality
assurance and testing. When there is no initial configuration, the Company generally
recognizes the license fees from those products upon delivery as the services to be
provided are not essential to the functionality of the software. Additionally, license
revenues will be recognized immediately when the user count for previously delivered
software increases. The Companys software maintenance usually begins immediately
after an initial warranty period. The portion of the license fee associated with the
warranty period is unbundled from the license fee and is recognized as maintenance
revenue ratably over the warranty period. The Company does not recognize any license fees
unless persuasive evidence of an arrangement exists, delivery has occurred, the license
amount is fixed or determinable and collectability is probable.


9
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|The
Company recognizes license fees as revenue from certain third party software products,
which are embedded into the Companys products. These license fees are recognized as
revenue using the percentage-of-completion method over a period of time that commences
with the execution of the license agreement and ends when the product configuration is
completed and ready for use by the customer. The cost of third party software is included
in the cost of license fees in the accompanying consolidated statements of operations.


Sales
force support services are generally provided under multi-year contracts. The contracts
specify the payment terms, which are generally over the term of the contract and
generally provide for termination in the event of breach, as defined in the respective
contract. Service revenues consist primarily of facilities management, configuration,
training and software maintenance. Facilities management represents charges for help
desk, data center and project management, and are recognized on a monthly basis as
services are performed. Configuration includes initial implementation services following
sales of new software products to customers, as well as revenues relating to work orders
to perform configuration services for previously purchased software. Configuration
revenue is recognized as services are performed when the related billings are on a time
and materials basis, and using the percentage-of-completion method for fixed fee
configuration or implementation contracts. Training revenue is recognized as the services
are performed. Software maintenance revenue is recognized ratably over the term of the
contract, generally one year.


We
review goodwill for impairment pursuant to SFAS No. 142, Goodwill and Other
Intangible Assets (SFAS No. 142). Goodwill is tested for impairment at least
annually. Additionally, if an event occurs or circumstances change, and it is more likely
than not that an impairment has occurred, we will perform an interim test for goodwill
impairment. We have chosen October 1 as the date to review our existing goodwill for
impairment on an annual basis. SFAS No. 142 requires that an initial impairment test be
performed upon implementation on January 1, 2002. We have only one reportable segment and
one reporting unit. Therefore, impairment is tested at the entity level. Based upon the
excess of the Companys fair value over its net book value at January 1, 2002, there
was no indication of an impairment to goodwill and therefore, no impairment was recorded
upon implementation of SFAS No. 142. We will test goodwill for impairment again on
October 1, 2002, provided that there is no indication of impairment during an interim
period.


We
review our long-lived assets excluding goodwill for impairment pursuant to SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets.  Our
long-lived assets, excluding goodwill, consist primarily of property and equipment, a
facility held for sale, a long term receivable and capitalized software development
costs. Our facility held for sale is carried at its estimated fair value less selling
costs. All other long-lived assets, excluding goodwill, are classified as held and used.
These assets are tested for recoverability whenever events or changes in circumstances
indicate that the respective carrying amount may not be recoverable.



We
recognize deferred tax assets and liabilities based on the differences between the
financial statement carrying amounts and the tax bases of assets and liabilities. The
Company periodically reviews its deferred tax assets for recoverability and establishes a
valuation allowance based on historical taxable income, projected future taxable income,
and the expected timing of the reversals of existing temporary differences, all of which
require significant management judgments. Although realization is not assured, management
believes it is more likely than not that the recorded net deferred tax asset will be
realized.



RESULTS OF
OPERATIONS


THREE MONTHS
ENDED JUNE 30, 2002 AND 2001


REVENUES.  
Total revenues increased to $57,612,000 in the three months ended June 30, 2002, up
$4,665,000 or 9% from revenues of $52,947,000 in the three months ended June 30, 2001.


License
fee revenues decreased to $2,306,000 in the three months ended June 30, 2002, a decrease
of $1,967,000 or 46% from $4,273,000 in the three months ended June 30, 2001. License fee
revenues as a percentage of total revenues were 4% in the three months ended June 30,
2002, as compared to 8% in the three months ended June 30, 2001. License fees are, by
nature, non-recurring items. The majority of license fees recognized during the three
months ended June 30, 2002 resulted from our performance of services related to licenses
being recognized using the percentage-of-completion method.



10
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|Service
revenues increased to $55,306,000 in the three months ended June 30, 2002, up $6,632,000
or 14% from $48,674,000 in the three months ended June 30, 2001. Service revenues as a
percentage of total revenues were 96% in the three months ended June 30, 2002, as
compared to 92% in the three months ended June 30, 2001. The increase in service revenues
related to growth within our traditional business and growth in our clinical services
business.


COST
OF REVENUES.  Total cost of revenues decreased to $28,755,000 in the three months
ended June 30, 2002, down $7,084,000 or 20% from $35,839,000 in the three months ended
June 30, 2001.


Cost
of license fees decreased to $1,007,000 in the three months ended June 30, 2002, down
$191,000 or 16% from $1,198,000 in the three months ended June 30, 2001. Cost of license
fees for the three months ended June 30, 2002 is comprised of the amortization of
capitalized software development costs of $648,000 and third party vendor license fees of
$359,000. Cost of license fees for the same period in 2001 is comprised of the
amortization of purchased software and capitalized software development costs of $884,000
and third party vendor license fees of $314,000. The decrease in the amortization of
capitalized software development costs in the three months ended June 30, 2002 was
primarily due to the charge for impairment of purchased capitalized software that was
recorded during the second quarter of 2001.


During
the three months ended June 30, 2001, the Company recorded an impairment charge of
$2,614,000 related to its purchased capitalized software costs from its acquisitions of
Analytika, Inc. (Analytika) and Associated Business Computing, N.V. (ABC).
These operations have been modified to keep pace with the developing needs of the ethical
pharmaceutical market. The projected discounted future cash flows of these operations
were substantially less than the carrying value of the related long-lived assets,
including identifiable intangibles and goodwill. The fair value of the long-lived assets
was determined based upon the undiscounted cash flows expected to be derived from these
operations.


Cost
of services decreased to $27,748,000 in the three months ended June 30, 2002, down
$4,279,000 or 13% from $32,027,000 in the three months ended June 30, 2001. This decrease
was primarily due to $3,053,000 of non-recurring costs recorded in the three months ended
June 30, 2001, which related to the recognition of future losses on selected contracts
for which we expected the costs of providing the future services would exceed the revenue
to be received from the performance of the services which was identified while examining
the restructuring of our Stroudsburg, PA facility. The remaining decrease in cost
of services was primarily due to efficiencies gained from the Companys
restructuring plan and the relocation of certain services to locations with lower
operating expenses that took place during 2001.


Total
gross margin for the three months ended June 30, 2002 was 50%, up from 32% for the three
months ended June 30, 2001. The margin was impacted significantly by the $2,614,000 asset
impairment and $3,053,000 of non-recurring costs within costs of services that occurred
in the three months ended June 30, 2001. If not for the effects of these items, the gross
margin would have been 43% for the three months ended June 30, 2001. The improvement in
gross margin during the three month period ended June 30, 2002 was due to a favorable mix
shift within our services business and the efficiencies gained from the Companys
restructuring plan and the relocation of certain services to locations with lower
operating expenses that took place during 2001.


SELLING,
GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES.   SG&A expenses decreased to
$19,488,000 in the three months ended June 30, 2002, down $9,144,000 or 32% from
$28,632,000 in the three months ended June 30, 2001. As a percentage of revenues, SG&A
expenses decreased to 34% in the three months ended June 30, 2002, down from 54% in the
three months ended June 30, 2001. The decrease in SG&A expenses for the period ended
June 30, 2002 was partially attributable to approximately $2,800,000 of non-recurring costs incurred during the three
months ended June 30, 2001, which related to the transition of services from the Companys New Jersey facility to its new
facility in Chesapeake, Virginia. Excluding these costs, SG&A would have
been $25,779,000 for the three months ended June 30, 2001, which would have resulted in a decrease of $6,291,000 or
24% for the three months ended June 30, 2002. The remaining decrease was primarily attributable to $2,000,000 of costs
associated with the Companys Customer Relationship Management (CRM)
launch in partnership with Oracle Corporation during the three months ended June 30, 2001, an improvement in operating efficiencies,
a decrease in management bonuses in the three months ended June 30, 2002 and the
implementation of SFAS No. 142, which resulted in a reduction of goodwill amortization
expenses of approximately $500,000 for the three months ended June 30, 2002.


RESEARCH
AND DEVELOPMENT (R&D) EXPENSES.   R&D expenses decreased to
$2,455,000 in the three months ended June 30, 2002, down $513,000 or 17% from $2,968,000
in the three months ended June 30, 2001. As a percentage of revenues, R&D expenses
decreased to 4% in the three months ended June 30, 2002, down from 6% in the three months
ended June 30, 2001. This decrease was principally due to reduced payroll and related
costs of $523,000 during the three months ended June 30, 2002.


RESTRUCTURING
CHARGE.   On June 14, 2001, the Company announced a restructuring of its
business operations to reflect a lower expected revenue growth model in the near term.
The restructuring plan consists of the resizing of the Companys personnel as well
as the restructuring of its facility located in Stroudsburg, PA. The Stroudsburg, PA
operations have been substantially relocated to the Companys facilities in New
Jersey, Virginia and a new facility in Bethlehem, PA. The exit costs have been included
in the restructuring charge while the moving and other start up costs were not included
in this restructuring charge and will continue to be expensed as incurred. During the
second quarter of 2001, the Company recorded a charge of $6,134,000 associated with this
restructuring. The restructuring charges were determined based upon formal plans approved
by the Companys management.



11
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|ASSET
IMPAIRMENT.   During the second quarter of 2001, the Company reviewed the
carrying values of its long-lived assets, including its minority investments in start-up
ventures, identifiable intangibles and goodwill. Based upon this review, during the
second quarter of 2001, the Company wrote off $3,450,000 of cost method investments it
had in two start-up ventures due to a permanent impairment in the fair value of these
investments. These entities experienced difficulty in raising the additional capital
necessary to fund their start-up activities and the situation at both became especially
severe in the second quarter of 2001.


In
connection with the Companys announcement on June 14, 2001, relative to its
partnership with Oracle Corporation to market an integrated CRM solution to meet the
specialized needs of the worldwide pharmaceutical industry, the Companys vision and
product platform changed. The operations acquired through the Companys acquisitions
of ABC and Analytika were modified to keep pace with the developing needs of the ethical
pharmaceutical market. The projected discounted future cash flows of these operations
were substantially less than the carrying value of the related long-lived assets,
including identifiable intangibles and goodwill. The fair value of the long-lived assets
was determined based upon the undiscounted cash flows expected to be derived from these
operations. Management of the Company believes that these operations will generate
negative cash flows over the next several years due to the administrative costs required
to support the projected revenue stream. Accordingly, the Company recorded an impairment
charge of $8,787,000, consisting of $2,614,000 of purchased capitalized software and
$6,173,000 of goodwill during the three months ended June 30, 2001. Relative to the
operations acquired as a result of the Marketing Management International, Inc. (MMI)
acquisition, the Company now offers the mid-tier pharmaceutical industry a product which
is more compatible with the Companys vision of integrated CRM solutions.
Accordingly, the Company reduced the remaining useful life of the purchased capitalized
software related to the MMI acquisition to seven months as of June 30, 2001. As the
operations of the business acquired in the MMI acquisition continue to be successful, no
impairment charge or reduction in life was necessary for the goodwill associated with
MMI.


INTEREST
INCOME.  Interest income decreased to $288,000 in the three months ended
June 30, 2002, down $383,000 or 57% from $671,000 in the three months ended June 30,
2001. The decrease was principally due to lower short term interest rates versus last
year which adversely impacted interest income during the three months ended June 30,
2002.


PROVISION
FOR INCOME TAXES.   The effective tax expense recorded in the three months
ended June 30, 2002 was 36%, as compared with an effective tax benefit of 34% in the
three months ended June 30, 2001. This change resulted from a net loss position and the
write-off of certain goodwill amounts which are not deductible for tax purposes, both of
which occurred in the six months ended June 30, 2001.


In
July 2002, the State of New Jersey enacted new tax legislation that will adversely impact
the effective state tax rate of most companies operating in New Jersey. This legislation
is retroactive to January 1, 2002. It is estimated that the effect of this legislation
will increase the Companys effective tax rate from 36% to 40% for the 2002 tax
year. The tax provision for the three months ending September 30, 2002 will reflect the
retroactive impact of the higher effective tax rate for the six months ended June 30,
2002 as well as a provision on the current quarter pre-tax earnings of approximately 40%.
This will result in approximately $508,000 of additional income tax expense in the three
months ending September 30, 2002 resulting from the retroactive impact on the six months
ended June 30, 2002.


SIX MONTHS
ENDED JUNE 30, 2002 AND 2001


REVENUES.
  Total revenues increased to $115,055,000 in the six months ended June 30, 2002, up
$9,296,000 or 9% from $105,759,000 in the six months ended June 30, 2001.


License
fee revenues decreased to $5,485,000 in the six months ended June 30, 2002, a decrease of
$1,791,000 or 25% from $7,276,000 in the six months ended June 30, 2001. License fee
revenues as a percentage of total revenues were 5% in the six months ended June 30, 2002,
as compared to 7% in the six months ended June 30, 2001. License fees are, by nature,
non-recurring items. The majority of license fees recognized during the six months ended
June 30, 2002 resulted from our performance of services related to licenses being
recognized using the percentage-of-completion method.


Service
revenues increased to $109,570,000 in the six months ended June 30, 2002, up $11,087,000
or 11% from $98,483,000 in the six months ended June 30, 2001. Service revenues as a
percentage of total revenues were 95% in the six months ended June 30, 2002, as compared
to 93% in the six months ended June 30, 2001. The increase in service revenues related to
growth within our traditional business and growth in our clinical services business.


COST
OF REVENUES.  Total cost of revenues decreased to $58,907,000 in the six months
ended June 30, 2002, a decrease of $4,993,000 or 8% from $63,900,000 in the six months
ended June 30, 2001.


Cost
of license fees increased to $2,251,000 in the six months ended June 30, 2002, an
increase of $90,000 or 4% from $2,161,000 in the six months ended June 30, 2001. Cost of
license fees for the six months ended June 30, 2002 is comprised of the amortization of
capitalized software development costs of $1,297,000 and third party vendor license fees
of $954,000. Cost of license fees for the same period in 2001 is comprised of the
amortization of purchased software and capitalized software development costs of
$1,688,000 and third party vendor license fees of $473,000. The costs associated with
third party vendor licenses increased due to an upgrade purchased by an existing customer
during the six months ended June 30, 2002. The decrease in the amortization of
capitalized software development costs in the six months ended June 30, 2002 was
primarily due to the charge for impairment of purchased capitalized software that was
recorded during the second quarter of 2001.



12
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|During
the six months ended June 30, 2001, the Company recorded an impairment charge of
$2,614,000 related to its purchased capitalized software costs from its acquisitions of
Analytika and ABC. These operations have been modified to keep pace with the developing
needs of the ethical pharmaceutical market. The projected undiscounted future cash flows
of these operations were substantially less than the carrying value of the related
long-lived assets, including identifiable intangibles and goodwill. The fair value of the
long-lived assets was determined based upon the discounted cash flows expected to be
derived from these operations.


Cost
of services decreased to $56,656,000 in the six months ended June 30, 2002, down
$2,469,000 or 4% from $59,125,000 in the six months ended June 30, 2001. This decrease
was due primarily to $3,053,000 of non-recurring costs recorded in the six months ended
June 30, 2001, which related to the recognition of future losses on selected contracts
for which we expected the costs of providing the future services will exceed the revenue
to be received from the performance of the services, which was identified while examining
the restructuring of our Stroudsburg, PA facility.There was an additional
decrease in cost of services primarily due to efficiencies gained from the Companys
restructuring plan and the relocation of certain services to locations with lower
operating expenses that took place during 2001. Partially offsetting these decreases was
an increase in service revenues.


Total
gross margin for the six months ended June 30, 2002 was 49%, up from 40% for the six
months ended June 30, 2001. The margin was impacted significantly by the $2,614,000 asset
impairment and $3,053,000 of non-recurring costs within costs of services that occurred
in the six months ended June 30, 2001. If not for the effects of these items, the gross
margin would have been 45% for the six months ended June 30, 2001. The improvement in
gross margin during the six month period ended June 30, 2002 was due to a favorable mix
shift within our services business and the efficiencies gained from the Companys
restructuring plan and the relocation of certain services to locations with lower
operating expenses that took place during 2001.


SELLING,
GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES.   SG&A expenses decreased to
$38,987,000 in the six months ended June 30, 2002, down $10,108,000 or 21% from
$49,095,000 in the six months ended June 30, 2001. As a percentage of revenues, SG&A
expenses decreased to 34% in the six months ended June 30, 2002, as compared with 46% in
the six months ended June 30, 2001. The decrease in SG&A expenses for the period
ended June 30, 2002 was partially attributed to approximately $2,800,000 of non-recurring costs incurred during the
six months ended June 30, 2001, which related to the transition of services from the Companys New Jersey facility
to its new facility in Chesapeake, Virginia. Excluding these costs, SG&A would
have been $46,242,000 for the six months ended June 30, 2001, which would have resulted in a decrease of $7,255,000 or
16% for the six months ended June 30, 2002. The remaining decrease was primarily attributed to $2,000,000 of costs associated
with the Companys CRM launch in partnership with Oracle Corporation during the six months ended June 30, 2001, an improvement
in operating efficiencies,
a decrease in management bonuses in the six months ended June 30, 2002 and the
implementation of SFAS No. 142, which resulted in a reduction of goodwill amortization
expenses of approximately $1,000,000 for the six months ended June 30, 2002. The decrease
in SG&A expenses was also impacted by operating efficiencies achieved during the
period as the result of our corporate restructuring plan.


RESEARCH
AND DEVELOPMENT (R&D) EXPENSES.   R&D expenses decreased to
$5,083,000 in the six months ended June 30, 2002, down $752,000 or 13% from $5,835,000 in
the six months ended June 30, 2001. As a percentage of revenues, R&D expenses
decreased to 4% in the six months ended June 30, 2002, down from 6% in the six months
ended 2001. This decrease was primarily due to reduced payroll and related costs of
$594,000 during the six months ended June 30, 2002.


RESTRUCTURING
CHARGE.   On June 14, 2001, the Company announced a restructuring of its
business operations to reflect a lower expected revenue growth model in the near term.
The restructuring plan consisted of the resizing of the Companys personnel as well
as the restructuring of its facility located in Stroudsburg, PA. The Stroudsburg, PA
operations have been substantially relocated to the Companys facilities in New
Jersey, Virginia and a new facility in Bethlehem, PA. The exit costs have been included
in the restructuring charge while the moving and other start-up costs were not included
in this restructuring charge and will continue to be expensed as incurred. During the six
months ended June 30, 2001, the Company recorded a charge of $6,134,000 associated with
this restructuring. The restructuring charges were determined based upon formal plans
approved by the Companys management.


ASSET
IMPAIRMENT.   During the six months ended June 30, 2001, the Company
reviewed the carrying values of its long-lived assets, including its minority investments
in start-up ventures, identifiable intangibles and goodwill. Based upon this review,
during the six months ended June 30, 2001, the Company wrote off $3,450,000 of cost
method investments it had in two start-up ventures due to a permanent impairment in the
fair value of these investments. These entities experienced difficulty in raising the
additional capital necessary to fund their start-up activities and the situation at both
became especially severe in the second quarter of 2001.



13
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|In
connection with the Companys announcement on June 14, 2001, relative to its
partnership with Oracle Corporation to market an integrated CRM solution to meet the
specialized needs of the worldwide pharmaceutical industry, the Companys vision and
product platform changed. The operations acquired through the Companys acquisitions
of ABC and Analytika were modified to keep pace with the developing needs of the ethical
pharmaceutical market. The projected undiscounted future cash flows of these operations
were substantially less than the carrying value of the related long-lived assets,
including identifiable intangibles and goodwill. The fair value of the long-lived assets
was determined based upon the discounted cash flows expected to be derived from these
operations. Management of the Company believes that these operations will generate
negative cash flows over the next several years due to the administrative costs required
to support the projected revenue stream. Accordingly, the Company recorded an impairment
charge of $8,787,000, consisting of $2,614,000 of purchased capitalized software and
$6,173,000 of goodwill during the six months ended June 30, 2001. Relative to the
operations acquired as a result of the MMI acquisition, the Company now offers the
mid-tier pharmaceutical market a product which is more compatible with the Companys
vision of integrated CRM solutions. Accordingly, the Company reduced the remaining useful
life of the purchased capitalized software related to the MMI acquisition to seven months
as of June 2001. As the operations of the business acquired in the MMI acquisition
continue to be successful, no impairment charge or reduction in life was necessary for
the goodwill associated with MMI.


INTEREST
INCOME.  Interest income decreased to $592,000 in the six months ended June
30, 2002, down $1,005,000 or 63% from $1,597,000 in the six months ended June 30, 2001.
The decrease was primarily due to a lower short term interest rates versus last year
which adversely impacted interest income during the six months ended June 30, 2002.


PROVISION
FOR INCOME TAXES.  The effective tax expense recorded in six months ended
June 30, 2002 was 36%, as compared with an effective tax benefit of 34% in the six months
ended June 30, 2001. This increase resulted from a net loss position and the write-off of
certain goodwill amounts which are not deductible for tax purposes, both of which
occurred in the six months ended June 30, 2001.


In
July 2002, the State of New Jersey enacted new tax legislation that will adversely impact
the effective state tax rate of most companies operating in New Jersey. This legislation
is retroactive to January 1, 2002. It is estimated that the effect of this legislation
will increase the Companys effective tax rate from 36% to 40% for the 2002 tax
year. The tax provision for the three months ending September 30, 2002 will reflect the
retroactive impact of the higher effective tax rate for the six months ended June 30,
2002 as well as a provision on the current quarter pre-tax earnings of approximately 40%.
This will result in approximately $508,000 of additional income tax expense in the three
months ending September 30, 2002 resulting from the retroactive impact on the six months
ended June 30, 2002.


LIQUIDITY AND
CAPITAL RESOURCES


We
finance our operations primarily through cash generated by operations. Net cash provided
by operating activities was $3,809,000 for the six months ended June 30, 2002, compared
to $16,912,000 for the six months ended June 30, 2001. This decrease was due largely to
cash generated from the reduction of accounts receivable during the six months ended June
30, 2001, due to the collection of an unusually high accounts receivable balance as of
December 31, 2000. The decrease in cash provided by operating activities was also
significantly impacted by the accrual of many non-recurring and restructuring costs
during the six months ended June 30, 2001. Overall, accounts payable and accrued expenses
decreased by $6,427,000 during the six months ended June 30, 2002 due to a reduction in
management bonuses and continued payments of one-time and restructuring accruals. These
factors were offset by the Companys net loss in the six months ended June 30, 2001
compared with its net income in the six months ended June 30, 2002.


Cash
used in investing activities was $15,991,000 in the six months ended June 30, 2002,
compared to $27,689,000 in the six months ended June 30, 2001. The decrease of
$11,698,000 was due primarily to our purchase of a new building and tenant improvements
made to our new data center facility during the six months ended June 30, 2001.


Cash
provided by financing activities was $2,010,000 in the six months ended June 30, 2002,
compared to cash used in financing activities of $12,062,000 in the six months ended June
30, 2001. The difference of $14,072,000 was primarily due to repurchases of common stock
during the six months ended June 30, 2001 under the stock repurchase program announced on
January 31, 2001.


We
maintain a $15,000,000 revolving line of credit agreement with JP Morgan Chase, N.A. The
agreement is available to finance working capital needs and possible future acquisitions.
The terms of this agreement require us to maintain a minimum consolidated net worth,
among other covenants, measured quarterly, which is equal to $105,000,000 plus 50% of net
income earned after January 1, 2002 and 75% of the net proceeds to us of any stock
offerings after September 30, 2001 as defined in the agreement. This covenant also limits
the amount of cash dividends we may pay. As of June 30, 2002, approximately $17,445,000 was available for the payment of dividends.
The Company currently has no intention of paying
dividends. The credit facility expires on November 30, 2002. There were no borrowings
outstanding under the agreement and we were in compliance with all of our covenant
obligations as of June 30, 2002 and December 31, 2001.


As of
June 30, 2002, we did not have any material commitments for capital expenditures. Our
principal commitments at June 30, 2002 consisted primarily of obligations under operating
leases. Future minimum rental payments on these leases are as follows:



14
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|Year ending December 31, |  |              | 
|------------------------ |  | ------------ | 
|2002                     |  | $  4,315,000 | 
|2003                     |  | 7,599,000    | 
|2004                     |  | 6,069,000    | 
|2005                     |  | 3,943,000    | 
|2006                     |  | 3,944,000    | 
|2007 and thereafter      |  | 11,601,000   | 

|As of
June 30, 2002, letters of credit for approximately $500,000 were outstanding.


The
Company has an agreement with a venture capital fund with a commitment to contribute
$1,000,000 to the fund, callable in $100,000 increments. As of June 30, 2002, $200,000
has been paid, with $800,000 of commitment remaining. The agreement has a termination
date which is ten years from its effective date, subject to extension by the general
partner.


At
June 30, 2002, our working capital was approximately $90,237,000. Total cash and
investments were 40% of total assets as of June 30, 2002 compared with 36% as of June 30,
2001. The Companys days sales outstanding in accounts receivable was 60 days as of
June 30, 2002 compared with 66 days as of June 30, 2001. We believe that available funds,
anticipated cash flows from operations and our line of credit will satisfy our currently
projected working capital and capital expenditure requirements, exclusive of cash
required for possible acquisitions of businesses, products and technologies, for the
foreseeable future.


We
regularly evaluate opportunities to acquire products or businesses complementary to our
operations. Such acquisition opportunities, if they arise, and are successfully
completed, may involve the use of cash or equity instruments.


On
July 31, 2002, the Company announced that its Board of Directors had authorized the
Company to repurchase up to $20,000,000 of its outstanding common stock over a two-year
period (the 2002 Stock Repurchase Plan). Under the 2002 Stock Repurchase Plan
the Company will repurchase shares on the open market or in privately negotiated
transactions from time to time. Repurchases of stock under the 2002 Stock Repurchase Plan
are at managements discretion, depending upon price and availability. The
repurchased shares are held as treasury stock, which may be used to satisfy the Companys
current and near term requirements under its equity incentive and other benefit plans and
for other corporate purposes. Through August 9, 2002, the Company has repurchased
277,500 shares of Company common stock at a purchase price of $1,469,032 under the
2002 Stock Repurchase Plan.


FACTORS THAT
MAY AFFECT FUTURE OPERATING RESULTS


OUR BUSINESS IS
HEAVILY DEPENDENT ON THE PHARMACEUTICAL INDUSTRY


Most
of our customer relationship management (CRM) and sales force effectiveness (SFE)
products and services are currently used in connection with the marketing and sale of
prescription-only drugs. This market is undergoing a number of significant changes. These
include:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | the
significant consolidation of the pharmaceutical industry as well as the timing and
sequencing of sales to our customers may reduce the number of our existing and potential
customers;
| |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | regulatory
changes that permit the over-the-counter sale of formerly prescription-only drugs; and
| |  | - |  | -------------------------------------------------------------------------------------------------

| |  |  |  | competitive
pressure on the pharmaceutical industry resulting from the continuing shift to delivery
of healthcare through managed care organizations.
| |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

|We
cannot assure you that we can respond effectively to any or all of these and other
changes in the marketplace. Our failure to do so could have a material adverse effect on
our business, operating results or financial condition.


PROBLEMS IN THE
TRANSITION OF OUR INTERNAL JOB-COST AND FINANCIAL SYSTEMS MAY NEGATIVELY IMPACT OUR
ABILITY TO TIMELY REPORT ACCURATE FINANCIAL RESULTS FOR THE THIRD QUARTER 2002, BILL OUR
CUSTOMERS AND PAY OUR VENDORS


We are
currently transitioning our internal job-cost and financial systems for our U.S.
operations to an Oracle-based system. The actual transfer to Oracle is currently planned
to occur in August 2002. While we are taking significant measures to ensure a successful
transition, we cannot assure you that, despite our efforts, the transition will be free
from problems. Problems in the implementation could impact our ability to timely report
accurate financial results for the third quarter of 2002 and could also negatively impact
our ability to bill our customers and pay our vendors in a timely manner. Accordingly, we
cannot assure you that the transition of our internal job-cost and financial systems will
have no material adverse effect on our business, operating results or financial
condition.



15
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|OUR QUARTERLY RESULTS OF
OPERATIONS MAY FLUCTUATE SIGNIFICANTLY AND MAY NOT MEET MARKET EXPECTATIONS


Our
results of operations may vary from quarter to quarter due to lengthy sales and
implementation cycles for our products, our fixed expenses in relation to our fluctuating
revenues and variations in our customers budget cycles, each of which is discussed
below. As a result, you should not rely on quarter-to-quarter comparisons of our results
of operations as an indication of future performance. It is also possible that in some
future period our results of operations may be below our targeted goals and the
expectations of the public market analysts and investors. If this happens, the price of
our common stock may decline.


OUR LENGTHY SALES AND
IMPLEMENTATION CYCLES MAKE IT DIFFICULT TO PREDICT OUR QUARTERLY REVENUES


The
selection of a CRM solution generally entails an extended decision-making process by our
customers because of the strategic implications and substantial costs associated with a
customers license or implementation of the solution. Given the importance of the
decision, senior levels of management of our customers often are involved and, in some
instances, its board of directors may be involved in this process. As a result, the
decision-making process typically takes nine to eighteen months, and in certain cases
even longer. Accordingly, we cannot control or predict the timing of our execution of
contracts with customers.


In
addition, an implementation process of three to six or more months before the software is
rolled out to a customers sales force is customary. However, if a customer were to
delay or extend its implementation process, our quarterly revenues may decline below
expected levels and could adversely affect our results of operations.


OUR FIXED COSTS MAY LEAD
TO FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS IF REVENUES FALL BELOW EXPECTATIONS


We
establish our expenditure levels for product development, sales and marketing and some of
our other operating expenses based in large part on our expected future revenues and
anticipated competitive conditions. In particular, we frequently add staff in advance of
new business to permit adequate time for training. If the new business is subsequently
delayed, canceled or not awarded, we will have incurred expenses without the associated
revenues. In addition, we may increase sales and marketing expenses if competitive
pressures become greater than originally anticipated. Since only a small portion of our
expenses varies directly with our actual revenues, our operating results and
profitability are likely to be adversely and disproportionately affected if our revenues
fall below our targeted goals or expectations.


OUR BUSINESS IS AFFECTED
BY VARIATIONS IN OUR CUSTOMERS BUDGET CYCLES


We
have historically realized a greater percentage of our license fees and service revenues
in the second half of the year than in the first half because, among other things, our
customers typically spend more of their annual budget authorization for CRM and SFE
solutions in the second half of the year. However, the relationship between the amounts
spent in the first and second halves of a year may vary from year to year and from
customer to customer. In addition, changes in our customers budget authorizations
may reduce the amount of revenues we receive from the license of additional software or
the provision of additional services. As a result, our operating results could be
adversely affected.


WE DEPEND ON A FEW MAJOR
CUSTOMERS FOR A SIGNIFICANT PORTION OF OUR REVENUES


Historically,
a limited number of customers have contributed a significant percentage of the Companys
revenues. The Company anticipates that its operating results in any given period will
continue to depend significantly upon revenues from a small number of customers. The loss
of any of these customers could have a materially adverse effect on the Companys
business. While we have lost some customers to software products and/or services offered
by our competitors or by our customers in-house staff, such events have not to-date
had a material adverse impact on the Company. We cannot, however, make any assurances
that we will retain our existing customers or attract new customers that would replace
the revenue that could be lost if one or more of these customers failed to renew its
agreement(s) with the Company.


16
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|WE MAY BE UNABLE TO
SUCCESSFULLY INTRODUCE NEW PRODUCTS OR RESPOND TO TECHNOLOGICAL CHANGE


The
market for CRM and SFE products changes rapidly because of frequent improvements in
computer hardware and software technology. Our future success will depend, in part, on
our ability to:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | use
available technologies and data sources to develop new products and services and to
enhance our current products and services;
| |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | introduce
new solutions that keep pace with developments in our target markets; and
| |  | - |  | -----------------------------------------------------------------------------------

| |  |  |  | address
the changing and increasingly sophisticated needs of our customers.
| |  | - |  | ---------------------------------------------------------------------------

|We
cannot assure you that we will successfully develop and market new products or product
enhancements that respond to technological advances in the marketplace, or that we will
do so in a timely fashion. We also cannot assure you that our products will adequately
and competitively address the needs of the changing marketplace.


Competition
for software products has been characterized by shortening product cycles. We may be
materially and adversely affected by this trend if the product cycles for our products
prove to be shorter than we anticipate. If that happens, our business, operating results
or financial condition could be adversely affected.


To
remain competitive, we also may have to spend more of our revenues on product research
and development than we have in the past. As a result, our results of operations could be
materially and adversely affected.


Further,
our software products are technologically complex and may contain previously undetected
errors or failures. Such errors have occurred in the past and we cannot assure you that,
despite our testing, our new products will be free from errors. Software errors could
cause delays in the commercial release of products until the errors have been corrected.
Software errors may cause damage to our reputation and cause us to commit significant
resources to their correction. Errors that result in losses or delays could have a
material adverse effect on our business, operating results or financial condition.


INCREASED COMPETITION MAY RESULT IN
PRICE REDUCTIONS AND DECREASED DEMAND FOR OUR PRODUCTS AND SERVICES


There
are a number of other companies that sell CRM and SFE products and related services that
specifically target the pharmaceutical industry, including competitors that are actively
selling CRM and SFE software products in more than one country and competitors that also
offer CRM and SFE support services. Some of our competitors and potential competitors are
part of large corporate groups and have significantly greater financial, sales,
marketing, technology and other resources than we have.


While
we believe that the CRM and SFE software products and/or services offered by most of our
competitors do not address the variety of pharmaceutical customer needs that our
solutions address, increased competition may require us to reduce the prices for our
products and services. Increased competition may also result in decreased demand for our
products and services.


We
believe our ability to compete depends on many factors, some of which are beyond our
control, including:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | the
number and success of new market entrants supplying competing CRM products or support
services;
| |  | - |  | ---------------------------------------------------------------------------------------------------

| |  |  |  | expansion
of product lines by, or consolidation among, our existing competitors; and
| |  | - |  | ------------------------------------------------------------------------------------

| |  |  |  | development
and/or operation of in-house CRM software products or services by our customers and
potential customers.
| |  | - |  | --------------------------------------------------------------------------------------------------------------------

|Any
one of these factors can lead to price reductions and/or decreased demand and we cannot
assure you that we will be able to continue to compete successfully or that competition
will not have a material adverse effect on our business, operating results or financial
condition.


OUR INTERNATIONAL OPERATIONS HAVE
RISKS THAT OUR DOMESTIC OPERATIONS DO NOT


The
sale of our products and services in foreign countries accounts for, and is expected in
the future to account for, a material part of our revenues. These sales are subject to
risks inherent in international business activities, including:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | any
adverse change in the political or economic environments in these countries;
| |  | - |  | --------------------------------------------------------------------------------

| |  |  |  | any
adverse change in tax, tariff and trade or other regulations;
| |  | - |  | -----------------------------------------------------------------

| |  |  |  | the
absence or significant lack of legal protection for intellectual property rights;
| |  | - |  | -------------------------------------------------------------------------------------

| |  |  |  | exposure
to exchange rate risk for service revenues which are denominated in currencies other than
U.S. dollars; and
| |  | - |  | --------------------------------------------------------------------------------------------------------------------

| |  |  |  | difficulties
in managing an organization spread over various jurisdictions.
| |  | - |  | ---------------------------------------------------------------------------

|17
|--

---

|WE MAY FACE
RISKS ASSOCIATED WITH ACQUISITIONS


Our
business could be materially and adversely affected as a result of the risks associated
with acquisitions. As part of our business strategy, we have acquired businesses that
offer complementary products, services or technologies. These acquisitions are
accompanied by the risks commonly encountered in an acquisition of a business, including:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | the
effect of the acquisition on our financial and strategic position;
| |  | - |  | ----------------------------------------------------------------------

| |  |  |  | the
failure of an acquired business to further our strategies;
| |  | - |  | --------------------------------------------------------------

| |  |  |  | the
difficulty of integrating the acquired business;
| |  | - |  | ----------------------------------------------------

| |  |  |  | the
diversion of our management's attention from other business concerns;
| |  | - |  | -------------------------------------------------------------------------

| |  |  |  | the
impairment of relationships with customers of the acquired business;
| |  | - |  | ------------------------------------------------------------------------

| |  |  |  | the
potential loss of key employees of the acquired company; and
| |  | - |  | ----------------------------------------------------------------

| |  |  |  | the
maintenance of uniform, company-wide standards, procedures and policies.
| |  | - |  | ----------------------------------------------------------------------------

|These
factors could have a material adverse effect on our revenues and earnings. We expect that
the consideration paid for future acquisitions, if any, could be in the form of cash,
stock, rights to purchase stock, or a combination of these. To the extent that we issue
shares of stock or other rights to purchase stock in connection with any future
acquisition, existing shareholders will experience dilution and potentially decreased
earnings per share.


WE MAY FACE RISKS
ASSOCIATED WITH EVENTS WHICH MAY AFFECT THE U.S. AND WORLD ECONOMIES


The
terrorist attacks of September 11, 2001 and subsequent world events created weakness in
the U.S. and world economies. While we did not experience any material impact to our
business during the time period immediately following the events of September 11, 2001,
we cannot assure you that the impact of these events, the threat of future terrorist
activity in the U.S. and other parts of the world, and any related U.S. military action
on the U.S. and world economies will not adversely affect our business or the businesses
of our customers.


OUR SUCCESS DEPENDS ON
RETAINING OUR KEY SENIOR MANAGEMENT TEAM AND ON ATTRACTING AND RETAINING QUALIFIED
PERSONNEL


Our
future success depends, to a significant extent, upon the contributions of our executive
officers and key sales, technical and customer service personnel. Our future success also
depends on our continuing ability to attract and retain highly qualified technical and
managerial personnel. Competition for such personnel is intense. We have at times
experienced difficulties in recruiting qualified personnel and we may experience such
difficulties in the future. Any such difficulties could adversely affect our business,
operating results or financial condition.


AN INABILITY TO MANAGE
OUR GROWTH COULD ADVERSELY AFFECT OUR BUSINESS


To
manage our growth effectively we must continue to strengthen our operational, financial
and management information systems and expand, train and manage our work force. However,
we may not be able to do so effectively or on a timely basis. Failure to do so could have
a material adverse effect upon our business, operating results or financial condition.


OUR BUSINESS DEPENDS ON
PROPRIETARY TECHNOLOGY THAT WE MAY NOT BE ABLE TO PROTECT COMPLETELY


We
rely on a combination of trade secret, copyright and trademark laws, non-disclosure and
other contractual agreements and technical measures to protect our proprietary
technology. We cannot assure you that the steps we take will prevent misappropriation of
this technology. Further, protective actions we have taken or will take in the future may
not prevent competitors from developing products with features similar to our products.
In addition, effective copyright and trade secret protection may be unavailable or
limited in certain foreign countries. In response to a request by our customer, we have
also on occasion entered into agreements which require us to place our source code in
escrow to secure our service and maintenance obligations.


Further,
while we believe that our products and trademarks do not infringe upon the proprietary
rights of third parties, third parties may assert infringement claims against us in the
future that may result in the imposition of damages or injunctive relief against us. In
addition, any such claims may require us to enter into royalty arrangements. Any of these
results could materially and adversely affect our business, operating results or
financial condition.


18
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|WE MAY NOT BE ABLE TO
COMPETE EFFECTIVELY IN THE INTERNET-RELATED PRODUCTS AND SERVICES MARKET NOR CAN WE
PROVIDE ASSURANCES THAT THE DEMAND FOR INTERNET-RELATED PRODUCTS AND SERVICES WILL
INCREASE


The
success of parts of our business will depend, in part, on our ability to continue
developing Internet-related products and responding to technological advances and
changing commercial uses of the Internet. We cannot assure you that our Internet-related
products and services will adequately respond to such technological advances and changing
uses. Nor can we assure you that the demand for Internet-related products and services
will increase.


IF OUR THIRD-PARTY
VENDORS ARE UNABLE TO SUCCESSFULLY RESPOND TO TECHNOLOGICAL CHANGE OR IF WE DO NOT
MAINTAIN OUR RELATIONSHIPS WITH THIRD-PARTY VENDORS, INTERRUPTIONS IN THE SUPPLY OF OUR
PRODUCTS MAY RESULT


Some
of our software is provided by third-party vendors. If our third-party vendors are unable
to successfully respond to technological change or if our relationships with certain
third-party vendors are terminated we may experience difficulty in replacing the
functionality provided by the third-party software currently offered with our products.
Although we believe there are other sources for all of our third-party software, any
significant interruption in the supply of these products could adversely impact our sales
unless and until we can secure another source. The absence of or any significant delay in
the replacement of functionality provided by third-party software in our products could
materially and adversely affect our sales.


CATASTROPHIC
EVENTS COULD NEGATIVELY AFFECT OUR INFORMATION TECHNOLOGY INFRASTRUCTURE


The
efficient operation of our business, and ultimately our operating performance, depends on
the uninterrupted use of our critical business and information technology systems. Many
of these systems require the use of specialized hardware and other equipment that is not
readily available. Although we maintain these systems at more than one location, a
natural disaster, a fire or other catastrophic event at any of these locations could
result in the destruction of these systems. In such an event, the replacement of these
systems and restoration of the archived data and normal operation of our business could
take several days to several weeks. During the intervening period when our critical
business and information technology systems are fully or partially inoperable, our
ability to conduct normal business operations could be significantly and adversely
impacted and as a result our business, operating results and financial conditions could
be adversely affected.


PROVISIONS OF OUR
CHARTER DOCUMENTS AND NEW JERSEY LAW MAY DISCOURAGE AN ACQUISITION OF DENDRITE


Provisions
of our Restated Certificate of Incorporation, as amended, our By-laws, as amended, and
New Jersey law may make it more difficult for a third party to acquire us. For example,
the Board of Directors may, without the consent of the stockholders, issue preferred
stock with rights senior to those of the common stock. In addition, the Company has a
Shareholder Rights Plan which may limit the ability of a third party to attempt a hostile
acquisition of the Company.


OUR COMMON
STOCK MAY BE SUBJECT TO PRICE FLUCTUATIONS


The
market price of our common stock may be significantly affected by the following factors:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | the
announcement or the introduction of new products by us or our competitors;
| |  | - |  | ------------------------------------------------------------------------------

| |  |  |  | quarter-to-quarter
variations in our operating results or changes in revenue or earnings estimates or
failure to meet or exceed revenue or earnings estimates;
| |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | market
conditions in the technology, healthcare and other growth sectors; and
| |  | - |  | -----------------------------------------------------------------------------

| |  |  |  | general
consolidation in the healthcare information industry which may result in the market
perceiving us or other comparable companies as potential acquisition targets.
| |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Further,
the stock market has experienced on occasion extreme price and volume fluctuations. The
market prices of the equity securities of many technology companies have been especially
volatile and often have been unrelated to the operating performance of such companies.
These broad market fluctuations may have a material adverse effect on the market price of
our common stock.



19
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|PART II.  OTHER INFORMATION


ITEM 4.  Submission of Matters to a
Vote of Security Holders


The Companys Annual Meeting of
Shareholders was held on May 14, 2002 (the Annual Meeting). The following
proposals were considered and voted upon at the Annual Meeting:


1.  
Election of Directors. The following directors were nominated for election to the Board
of Directors until the next Annual Meeting or until their successors are duly chosen and
qualified: John E. Bailye, Bernard M. Goldsmith, Deborah C. Hopkins, Edward J. Kfoury,
Paul A. Margolis, John H. Martinson, Terence H. Osborne and Patrick J. Zenner. The votes
cast and withheld for such nominees were as follows:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Name                 | For | Withheld  
|-------------------- | --- | ----------
|John E. Bailye       |     | 37,356,796
|Bernard M. Goldsmith |     | 37,239,777
|Deborah C. Hopkins   |     | 37,355,886
|Edward J. Kfoury     |     | 37,167,077
|Paul A. Margolis     |     | 37,258,487
|John H. Martinson    |     | 37,356,186
|Terence H. Osborne   |     | 37,357,086
|Patrick J. Zenner    |     | 37,283,586

|2.  Increase in 1997 Employee Stock Purchase Plan Shares. An amendment was proposed to the
Companys 1997 Employee Stock Purchase Plan to increase the number of authorized
plan shares by 450,000 shares. There were 36,552,965 votes cast for the amendment,
1,120,938 votes cast against the amendment and 8,133 abstentions.


3.  Increase in 1997 Stock Incentive Plan Shares. An amendment was proposed to the Companys
1997 Stock Incentive Plan to increase the number of authorized plan shares by 1,500,000
shares. There were 27,036,621 votes cast for the amendment, 10,634,882 votes cast against
the amendment and 10,533 abstentions.


Based on these voting results, each
of the directors nominated was elected and both amendments to increase the authorized
plan shares were approved.


ITEM 5.  Other
Information


None




ITEM 6.   Exhibits and
Reports on Form 8-K


(i)  Exhibits



None



(ii)  Reports on Form 8-K
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (a) |  | The
Company filed a Current Report on Form 8-K on April 10, 2002 pursuant to Item 4.  
Changes in Registrants Certifying Accountant relating to a change in the
Companys independent auditor for fiscal 2002.
| |  | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (b) |  | The
Company filed a Current Report on Form 8-K on May 14, 2002 pursuant to Item 5.  Other
Events relating to a separation agreement between the Company and Teresa F. Winslow.
| |  | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (c) |  | The
Company filed a Current Report on Form 8-K on May 15, 2002 pursuant to Item 5.   Other
Events relating to the Companys application of Emerging Issues Task Force Issue No.
01-14.
| |  | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|20
|--

---

|SIGNATURES


Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.


Date:   August 14, 2002
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | By: JOHN E. BAILYE
John E.BailyeChairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
| |  | -----------------------------------------------------------------------------------------------------------------------------

| |  | By: LUKE M. BESHAR
Luke M. BesharSenior Vice President
and Chief Financial Officer
(Principal Financial Officer)
| |  | ------------------------------------------------------------------------------------------------------------------------------